You don’t have a choice when it comes to care and diligence

And another thing…..effective directors are careful and diligent.It may come as a bit of a shock and surprise to some of you, but being a diligent and conscientious board member is not a matter of personal choice. It’s a whole lot more serious than that…indeed, it is enshrined in our law. And another thing….effective directors are careful and diligent.

Legally, the duty of a director is to display care and diligence at all times, to the extent that they exercise thoughtfulness and attentiveness in their role and have a reasonable grasp of the organisation’s financial position – after all, they physically sign off on the financials – and its operational aspects.

Some may think that’s a rather ambiguous definition, one that’s open to interpretation, and there’s even an argument that we’re dealing in semantics here.

So perhaps it’s best to clear the air and delve into the legal definition of ‘care and diligence’.

The law says that in some respects, it’s an objective test, in others it’s subjective.

Objectively speaking, there’s a point below which no director should function. And if and when they do, they’re failing the care and diligence test.

We’re thinking here of things like a person who doesn’t bother to read the board papers and prepare for board meetings, preferring to adopt a lackadaisical ‘she’ll be right’ approach. Someone whose attendance at meetings is similarly laid-back, both in terms of frequency and involvement.

Or someone who comes from outside the sector and makes little or no effort to learn about the environment within which the organisation operates. Then again, it could be someone who doesn’t have a head for figures, let alone an accounting background, and shows scant interest in acquiring even a rudimentary understanding of the financials.

Subjectively, if you, say, happen to be an auditor in professional life, your level of care on financial matters is expected to be higher than others because of your particular expertise. Expectations of you, in this area, are understandably heightened…and if we scratched the surface and dug a little deeper, we’d probably find that you’re on the board for no reason other than the very skills you possess in this area.

On the subject of financials, I came across a most interesting little exercise on the ASIC website just the other day, and I encourage you all to visit the site, have a bit of a play and take the test.

It’s a brief, 10-question multiple choice survey that, while a bit of fun, allows directors to see how well versed they are and provides them with a quick assessment of their level of financial statements and accounts knowledge.

And fear not, it’s largely anonymous, asking for little more than your gender…and here I need to front up!

I did the test the other day but entered myself as ‘Male’, thinking if I did badly, I didn’t want it to reflect on and bring down the overall female score!

I’m ashamed… but delighted with my six out of 10 score!

Until next time,
Kate.

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